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    Selling Your Company: The Business Owner’S Guide to the Process of Selling a Company and Redeeming the Full Value
    Selling Your Company: The Business Owner’S Guide to the Process of Selling a Company and Redeeming the Full Value
    Selling Your Company: The Business Owner’S Guide to the Process of Selling a Company and Redeeming the Full Value
    Ebook182 pages4 hours

    Selling Your Company: The Business Owner’S Guide to the Process of Selling a Company and Redeeming the Full Value

    By Ted Folkert

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    About this ebook

    Youve worked hard to build a company from the ground up, or perhaps youve turned around an underperforming firm. Youre ready to cash in on your hard work, but what exactly do you need to do?

    To ensure a smooth transition, protect your brand, and get the best price, you must do homework. Whether you handle the sale yourself or hire a professional, a basic understanding of the process will help you make the right decisions.

    Ted Folkert, a seasoned entrepreneur, draws upon his diverse business dealings so you can

    transfer ownership of small, midsize, and large companies; avoid pitfalls that could lengthen the selling process; and make simple changes to boost the value of your business.

    Folkert has owned manufacturing operations, public parking facilities, real estate firms, and more, and his case studies of failed transactions and successful transactions can give you the knowledge to make the right moves in real-life situations.

    Regardless of the size of your business, you need to know how to determine its value, prepare for a sale, and protect your interests as you enter the negotiation process. Get the tools you need to succeed in Selling Your Company.

    LanguageEnglish
    PublisheriUniverse
    Release dateDec 11, 2013
    ISBN9781491714652
    Selling Your Company: The Business Owner’S Guide to the Process of Selling a Company and Redeeming the Full Value
    Author

    Ted Folkert

    TED FOLKERT has spent more than forty years as an entrepreneur in numerous businesses, including public parking operations, real estate ownership and management, manufacturing, metal fabrication, transportation, real estate brokerage, and business brokerage. He currently lives in California.

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      Book preview

      Selling Your Company - Ted Folkert

      CONTENTS

      Acknowledgments

      Introduction

      Chapter 1

      An Overview: The Basics Of Selling A Company

      Chapter 2

      First Things First—The Objectives

      Chapter 3

      Determining The Company’s Value

      Chapter 4

      Defining Valuation Terms And Processes

      Chapter 5

      Questions To Consider In Determining Value

      Chapter 6

      Other Factors Affecting Valuation

      Chapter 7

      Preparing The Company For Sale

      Chapter 8

      Offering The Company For Sale

      Chapter 9

      Identifying A Potential Buyer

      Chapter 10

      Ways Of Marketing Your Company For Sale

      Chapter 11

      Providing Information Necessary For A Sale

      Chapter 12

      Implementing The Marketing Plan

      Chapter 13

      Negotiating The Terms And Conditions

      Chapter 14

      Due Diligence And Documentation Provided At Sale

      Chapter 15

      Integrating The Buyer

      Conclusion

      Appendixes

      Glossary Of Financial Terms Used In This Publication

      To all of the hardworking entrepreneurs who invested their

      blood, sweat, and tears in their life’s dream

      ACKNOWLEDGMENTS

      Thanks to the editors and publishers at iUniverse for their guidance in bringing this book to completion and to Pat Hininger for the initial proofing and editing. Many of the ideas and suggestions expressed here would not have been possible without the affiliation for many years with the International Business Brokers Association and Mergers & Acquisition Source through their ongoing training, education, and certification of practitioners in the business of selling businesses.

      INTRODUCTION

      I didn’t write this book as a textbook on business accounting or the legal transfer of companies, but its intent is to assist you, the owner of a small or midsize business, in understanding the considerations essential in evaluating, marketing, and selling companies in the small to midsize business market.

      I can recall starting out as an entry-level entrepreneur with some financial education but without any business training. I was learning the business, the industry, and the management lessons through the trial-and-error method. There was no business plan except to build a business that would provide a living for the family and create some value for the future. There was no thought of focusing on the essential features that create value for a sale of the company in the future.

      After owning and operating businesses engaged in transportation, manufacturing, real estate management, and asset management for forty years and simultaneously serving as a business advisor, business broker, and mergers and acquisitions intermediary for twenty years, I am only too aware of the value of understanding the essential qualities that make a company attractive to someone seeking a viable business acquisition.

      Many years of experience gain us a perspective that is impossible to realize at the beginning of our entrepreneurship, no matter how much education, advice, and counsel we receive or acquire initially.

      If you, a business owner, had the advantage of these lessons gained from learning by experience and if you had a good understanding of the value drivers of business valuation a little earlier in the process, the benefits could be rewarding during the working years of business ownership and the after years, that is, the time to sell or time to move on.

      I don’t know how many times business owners I’ve counseled about exiting their companies have told me that, if they had started the business with a plan to sell the company in the future, they would probably have done things differently. It would be great to begin with twenty-twenty foresight instead of ending up with twenty-twenty hindsight. But we start out with a plan or sometimes none at all to earn a living for ourselves and our families and to build something that will continue to provide our livelihood for years to come. And then, a few years or decades later, reality awakens us to the dilemma of how to exit the company and sustain our livelihood without the income, involvement, and identity that the company has provided for us all those years.

      So what do we do with our life’s enterprise? How do we go about realizing some value from our biggest asset without continuing to manage it forever? More often than not, the thought through the years was to let family members take it over. Of course, at the early stages, we don’t realize that, when that time comes, we may not want them to. Or they may not want to or may not be capable of running it. Or we may need the value that it can bring as a means of support going forward. So, more often than not, the decision is to offer the company for sale to a new owner.

      We next realize that it isn’t as easy as it seems. It seems that, if we could let the word out that it might be possible to acquire the company, we could then merely sit back and watch the offers come in with the only challenge being to select the best offer and owner for our business, that is, the baby we sired, created, mothered, organized, financed, promoted, and engineered into a good, viable business and a profitable, sustainable stream of income.

      If it would only work that way, this book would be of less importance. But because it doesn’t work that way, we must face the fact that all business owners are faced with, at some point, the decision of how best to exit the company, to exchange the value that was created over many years for cash, future income for retirement, or estate assets for others or to leave and move on for other reasons. These are some of the most important financial decisions that business owners ever encounter and some of the most stressful and perhaps most miscalculated and mishandled.

      The sale of privately owned companies is a big business in and of itself in this country. Thousands of real estate agents, business brokers, seminar promoters, advisors, appraisers, representatives, attorneys, accountants, escrow companies, lenders, merger and acquisition intermediaries, and investment bankers are involved in the business of selling businesses.

      Millions of small businesses, tens of thousands of midsize businesses, and thousands of larger businesses are in this country. Many change hands every year. These transactions support the practitioners in the industry and fulfill the exit strategies and acquisition strategies for the players, the buyers and sellers.

      The procedures and pitfalls discussed and illustrated here will give you some beneficial insight into the decision-making process, the potential of a successful sale, the value you might realize from a sale, the damage that could occur in the process, and the steps involved in a successful transfer of your company to a new owner.

      It should be noted that much of the information provided herein is the opinion of the author and may differ from the opinion of others with knowledge and experience in the business of selling businesses. Financial illustrations are presented, not for the purpose of accuracy or recommended procedures, but to indicate how decision-making can be based in various situations.

      You may want to keep three words in mind while reading this book: ready, willing, and able. These three words should apply in many of the examples, suggestions, and cautions discussed and illustrated. And above all, a successful and mutually beneficial sale of a company requires a ready, willing, and able buyer and a ready, willing, and able seller.

      CHAPTER 1

      An Overview:

      The Basics of Selling a Company

      Most every business owner will eventually need an exit plan. The reasons will vary.

      •  The owner is tired of doing what he or she is doing and, consequently, not maximizing the potential of the company. Some practitioners in the sale of businesses consider this the most often cited reason for selling.

      •  The owner has insufficient sources of capital to maintain a healthy cash flow or grow the company, a very common reason for selling.

      •  The owner lacks capital, expertise, adequate facilities, or technology. These are unfortunate but frequent.

      •  An industry is declining due to new technology, unpopularity, or obsolescence.

      •  The owner wishes to pursue other opportunities, an often-cited reason for selling.

      •  The owner has a physical or mental condition that prevents or deters required involvement in the company.

      •  The owner wants to retire from business, the reason for selling that typical buyers prefer most.

      Every business either changes hands or ceases to exist at some point. The company could be liquidated, sold, merged, turned over to heirs, reorganized as a public company, or just shut down and ceased to exist. All of these are common methods of an owner exiting a privately held company.

      It may be easier to attract a rewarding disposition of your business venture if your business has proven to have viability, growth potential, and a sustainable profitability. Businesses that fit this description attract more attention and more capable buyers. But businesses without these favorable achievements are not necessarily worthless and may also have value to a buyer for reasons other than a continuing stream of income. There may be an opportunity available to the owner to reap some reward for founding, nurturing, and operating the business for a period of years even if the profitability has not been the greatest achievement.

      The most commonly desired exit strategy is a sale of the company. If executed favorably, this provides a home for the company and a reward for the owner. Successful transfers of ownership obviously do occur quite often in the small business world and work out well for the seller and the buyer. Unfortunately, that is not always the case. Sometimes, they don’t work out so well. Sometimes, the new owner cannot retain the customer base. Sometimes, the new owner is not adequately capitalized due to the impact of purchasing the company and providing working capital and servicing purchase financing used to acquire the company. Buyers and sellers both have a tendency to overlook eventualities and overestimate outcomes. In other words, both are sometimes overly optimistic.

      The most important fact that exiting business owners should be aware of is that sometimes a company offered for sale sells and sometimes it doesn’t. This next sentence may seem surprising. Usually, it doesn’t sell. If you get the true statistics from an agent, broker, or industry expert, you will find that only about 20 percent of businesses listed for sale actually sell. Why is this? The reasons for a company not selling are many.

      • Overpricing can make it impossible for a typical buyer to obtain adequate financing or may prevent the buyer from realizing a reasonable return of the investment required to acquire the company.

      • Most buyers are not willing to accept unprofitability. Generally, if the current owner is unable to make a profit, it is too big a risk to assume that a new owner could do so.

      • Too much of the revenue of the company is concentrated in one or a few customers. The loss of one or more could cause failure.

      • The owner’s relationship

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